Exporters vulnerable to weak yen

Primary goods and raw material suppliers selling into Japan are likely to face stiff headwinds in the year ahead after New Zealand's fourth-biggest trading partner started making moves to weaken the yen.

The Japanese currency recently rose to a 4 -year high of 70 yen to the kiwi after Japan's newly elected Prime Minister, Shinzo Abe, last week called on the Bank of Japan to double its inflation target to 2 per cent, giving his new government the room it needs to dramatically weaken the yen.

The announcement came after Abe and his LDP Party won a landslide victory this month on the promise to reinvigorate the export-heavy Japanese economy through stimulus.

Mike Jones, a currency strategist at BNZ, said that while the yen was already hovering at depressed levels, Abe's election had forced the market to lift its trading range from 60 to 70 yen in 2012 to 68 yen to 78 yen in 2013.

That has the potential to dent demand for New Zealand-produced goods in the world's third-biggest economy as they become relatively more expensive.

According to official figures, New Zealand exported $3.4 billion worth of fruit, dairy, meat and fish as well as raw and processed wood products to Japan in 2011, about $520 million more than it imported.

Advertisement

Jones said exchange rate movements would make it more difficult for exporters selling into Japan, but the volatile cross offered numerous opportunities for them to hedge their currency exposure.

"One thing Kiwi exporters are good at is waiting for shakeouts in the [Japanese] cross to buy hedging," he said.

Tourism Export Council head Lesley Immink said the currency did not appear to have a great impact on the number of tourists visiting from Japan, which was only now starting to recover from the March 2011 tsunami.

However, Japan is only the country's fifth-biggest tourism market after Australia, China, the United States and Britain, with 69,968 visitors landing in the country in the year to the end of November.

The flipside of the weaker yen is that it should improve the buying power for importers of Japanese goods.

Certainly consumers have been enjoying the overall strength of the New Zealand dollar, with home electronics such as televisions selling at record low prices, a position that's likely to improve as the yen slides further.

The yen's impact on vehicles, which make up about 40 per cent of imports from Japan, is likely to be more subdued.

Chris Nichols, a director who heads up overseas buying for Christchurch car dealership Metro, said high demand for cars in the wake of the Japanese tsunami had resulted in a shortage of second-hand vehicles for export, which was keeping prices high.

In addition, the weaker currency was also bringing more international car buyers to the Japanese market, increasing competition for vehicles.

Similarly, he saw little movement in new vehicle prices.

The good news is that the effects of the weaker Japanese yen are expected to be felt only in the near term, according to BNZ economist Doug Steel.

He said that if the stimulus measures were successful, the Japanese economy would grow and export volumes should rise, making up for lower prices.